Behavioral economics is a methodology that emerged in the 1980s and, contrary to popular belief, is not directly related to “economics”. It looks at what factors consumers take into account when making economic decisions and has been gaining more and more attention over the last decade. The vast majority of us (up to 95% of consumers, according to some studies) go with our “gut” when making an economic decision, which means that the decision whether to buy or not to buy something is not based on a logical analysis. By taking this into account in their marketing strategies, businesses can drive customer decisions and achieve an unexpected success rate.
Understanding the Psychology of Consumer Behavior
Until the 80s, traditional economic theory told us that the purchase decision is a “process”, and in this process, the consumer makes a careful analysis. That is, the consumer was seen as the person who could evaluate the possible benefits and drawbacks of a product or service and make a purchase decision after deciding that he or she would benefit from it.
Behavioral economics claims the opposite. It sees the consumer not as someone who can make sound logical analysis but as a person who is influenced by emotions, cognitive biases, and social influences. When considering whether to buy or not to buy something, we don’t act like rational decision-makers. Instead, we make decisions using mental shortcuts, emotional responses, and contextual cues. In other words, we use emotion, not logic, and this means that even basic psychological techniques can increase sales if they are incorporated into marketing campaigns.
By understanding the psychological triggers that drive us to make purchasing decisions, marketers can tailor campaigns that appeal to them and deliver messages that speak directly to the target audience. This may even explain why some advertising campaigns are more successful, and others are less successful.
Price Perception “Hook”
In this context, one of the most powerful psychological triggers to persuade consumers to click the “buy” button is known as price perception. This basically requires using one of two techniques:
- Placing a high-priced product next to a low-priced product: Let’s consider a business selling laundry detergent. In its brochure, it can place a competitor’s detergent with its price and place its own detergent right next to it to show that it has a lower price. This is actually a very common technique used in the brochures of discount markets, and it works the same way for products with discounted prices. In other words, the non-discounted price and the discounted price of the product are listed next to each other to change the consumer’s perception of the price;
- Setting the price so that it ends with “99”: We are sure you have seen this technique used many times. It simply means using a price tag of “999.99” for a product whose price is actually “1,000”. Psychologically, we tend to focus on the first number, so we perceive the “discount” number as “900”, even though there is almost no difference.
These techniques are used in all industries: you can even see them in the iGaming industry and on casino games sites like voxcasino. For example, an online casino might display the deposit amount that will trigger the welcome bonus as “9.99”, not “10”.
Choice Simplification
Behavioral economics tells us that the more choices a consumer is presented with, the more confused they become. As the number of options increases, a so-called “decision paralysis” occurs, and the consumer simply abandons the purchase decision. This is because the average consumer wants to avoid actions that would deplete their cognitive resources. If there are two options, it’s easy to choose one, but if there are ten options, each one has to be evaluated individually – something most of us don’t want to deal with.
This means that if the concept of “less is more” is applied to marketing campaigns or purchase options, the results can be much more satisfying. Take Netflix, for example. When you want to subscribe, you are asked to choose one of three packages. These packages are listed side by side, and what each one includes is listed just below. To make it even easier to choose, Netflix automatically selects and flags the “most popular” package for you. The decision-making process is very simplified, and in most cases, the consumer will choose the package marked as most popular.
So, the goal should not be to provide the consumer with too much information and too many options to make it easier for them to choose. On the contrary, the less choice and information provided, the easier it becomes to make a choice and the faster the consumer makes a purchase decision.
Dealing with Loss Aversion
Every consumer, no matter how “average”, knows that they will suffer a loss when they buy a product or service. Unless they feel they are getting more in return, this fear of loss can negatively influence their purchase decision. Contrary to popular belief, it is not possible to solve this problem by communicating a message about “what amazing things they will get”. Instead, using messages that focus on loss aversion will be much more successful.
Free trials and demo subscriptions are the best example of this. The consumer is encouraged to get the trial package, which is only free for a “limited time”. This helps to show the consumer what they can miss out on, not what they can get. This is the best way to deal with loss aversion: not to praise the product/service, but to show the consumer what they will miss out on if they don’t buy it. This message also needs to be themed around the fear of missing out (FOMO). This is why messages like “don’t miss this opportunity – for a limited time – only 2 left in stock” are used.
The Power of “Reviews”
Allowing user comments/reviews on the platform where you offer your products or services for sale can be surprisingly effective. A behavioral principle called “social proof” says that people need guidance when making a purchase decision, and it’s much more effective when it comes from people like themselves. Simply put, the more reviews a product has, the more likely it is to be purchased. That’s why most companies list the number of customers on their homepage. Social validation can be the most effective way to get people to make a purchase decision.
Implementing Behavioral Economics in Your Marketing Strategy
Starting to use behavioral economics does not require you to completely change your marketing strategies. You can achieve successful results by adding the simple but effective techniques mentioned above to your existing strategies. It is best not to focus on a single technique but try to create a synergy by using them together. For example, you can use both loss aversion and price perception techniques together on the site or platform where you offer your product/service for sale.
Of course, every business has a different target audience, and for the same reason, each technique will need to be refined to a certain extent. Instead of following a fixed formula, you can see what works well and what doesn’t and adapt all of these techniques to suit you. In any case, behavioral economics will help you connect with your customers on a deeper level, increase sales, and build loyal customers.